* Commodity sector boosts Asia stocks to 2-year high
* Japan's Nikkei up 2 pct, driven by short covering
* Asia braces for more capital inflows post Fed
* US bond yields in 5-7-year segment fall
By Kevin Plumberg
HONG KONG, Nov 4 (Reuters) - Asian stocks rose to their
highest levels since June 2008 and commodity prices rallied on
Thursday after the Federal Reserve's new bond-buying programme
kept the hunt on for growth and higher yields.
Japanese equities rose 2 percent and led the region after
fears of a much stronger yen in the wake of the Fed decision
were eased by a moderate market reaction, prompting foreign
investors to cover their bets against stocks.
After falling overnight, the U.S. dollar stabilised, with
dealers hesitant to add to sizable bets against the currency
after the euro touched a 10-month high, though traders pushed
up copper and oil prices anyway.
There was still a plethora of events remaining this week
that could inject volatility in asset markets, including policy
meetings of the Bank of England, Bank of Japan and European
Central Bank as well as the October U.S. payrolls report.
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For more on the Fed decision, click: []
http://r.reuters.com/cyh73q
For charts on Asian equity flows, click:
http://link.reuters.com/buf27p
For a FACTBOX on policymaker reaction to the Fed, click
[]
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For Asia, after the Fed pledged to buy $600 billion of
mostly mid-maturity Treasury debt, increased capital flows into
the region will probably accelerate a process of reflation but
also heighten the risk of more stringent capital controls.
"By undertaking more Treasury bond purchases, the hope is
that risk appetite will provide the catalyst for people to
spend, particularly corporates," Sean Darby, Asia strategist
with Nomura in Hong Kong, said in a note.
"We expect Asian equities to remain well bid but the
additional QE will raise the spectre of capital controls in
ASEAN and parts of North Asia."
Japan's Nikkei share average was up 1.9 percent <>,
with shares of big exporters among the biggest lifts to the
index after the yen sold off overnight.
The MSCI index of Asia Pacific shares outside Japan edged
up 0.8 percent <.MIAPJ0000PUS>, led by the commodity and
technology sectors.
Since September when speculation grew the Fed would have to
print more cheap money and a chunk of those dollars would come
to high-growth Asia, the index has risen 19 percent, exceeding
returns on the MSCI all-country world index of 15 percent.
Hong Kong's stock market remained electric this week, with
the Hang Seng up 1 percent on the day <> and extending
gains so far this week to 5.6 percent compared with returns of
3.6 percent on the MSCI Asia Pacific ex-Japan index.
COPPER, CRUDE OIL GAIN
In currency markets, many dealers did not want to upset a
weak U.S. dollar trend already in place before the Fed meeting,
but quickly found other themes on which to trade.
The Canadian dollar was a big mover, with the U.S. dollar
climbing 0.3 percent to C$1.0076 after the Canadian government
surprised markets by blocking BHP Billiton's <BHP.AX> <BLT.L>
$39 billion bid for Potash Corp <POT.TO>. []
The euro was at $1.4110 <EUR=>, basically flat on the day,
after hitting a high around $1.4175 on Wednesday.
Some investors were beginning to reassess the risks of
keeping such negative bets on the dollar after the Fed decision
was largely in line with expectations.
For example, fund managers at Edmond de Rothschild Asset
Management said they were maintaining their short euro versus
the dollar position after the Fed news.
"After rallying so strongly in the recent past, risky
assets might inspire more caution. This would benefit the USD
and provide overall protection for our positions," the firm
said in a note.
Economic reflation trades were rampant in the commodities
market, with three-month copper traded on the London Metal
Exchange up 1.3 percent to $8,431.25 a tonne <CMCU3>, creeping
back toward a two-year high reached last week.
Crude prices were poised for a fourth day of gains, up 0.7
percent on the day at $85.27 a barrel <CLc1>.
Ten-year U.S. Treasury futures rose 0.5 percent to a
one-month high <TYc1>, while in the cash market, 5-year
Treasury yields <US5YT=RR> slipped 3 basis points to 1.08
percent, with 43 percent of the Fed's new plans for bond buying
falling between 4 and 7 year maturities.
(Editing by Muralikumar Anantharaman)
